Why governance is key in family-owned entities

Many private companies are run by families and passed down through the generations. One of the major risks that such companies face is that they rarely last for multiple generations.

The business model is often reliant on someone in the family checking that good senior management decisions are made.

What happens if a family member at the helm is not open to new ideas, lacks vision or is not vigilant in maintaining the highest standards of corporate governance?

In this situation, it is up to other family members to provide the necessary checks and balances and ensure the business is operated as the collective family desires.

SEE ALSO :Future of family firms hangs on outside help

Without this, it can be difficult to sustain the business over the generations.

The best way to keep the family business model working efficiently is by implementing a suitable board structure where family members are restricted.

The remaining board members should be fully independent. This will help the organisation make balanced decisions.

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Following the best practice of corporate governance engenders the trust of investors and debtors in the group.

Whether a company is private or public, the smooth running of the business ultimately depends on the quality of the team and the processes in place. It is not a case of one being better than the other.

While there are disadvantages to being a family-owned business, the owners of such a company frequently offer the value that senior executives at a public company do not.

For example, those executives typically leave on a fairly regular basis – their ties to the business are not as deep-rooted.

While private firms may not be subjected to the same requirements as listed names, what is deemed good practice, in general, is largely embraced on both sides of the fence.

It is not a case of calculatedly copying the corporate governance practices of public firms with an eye on becoming listed one day; it is more about identifying good practice and implementing it.

Board quality is dependent on diversity, and requires a combination of skills and experience.

This transcends gender and includes ethnicity, social class and cognitive reasoning.

Diverse boards are less prone to ‘groupthink’ and more likely to embrace new approaches to meet future threats and opportunities.

“Diversity is a leadership challenge, as diverse boards are probably more complex to lead, but more effective at what they do”

 -Moses Kemei is a Member of the Institute of Certified Secretaries.  

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